10 Rules to Make Sure Your Business Doesn't Fail

Even though we were in the midst of a deep recession with record unemployment, millions of Americans are taking the chance of a lifetime - they're starting their own businesses.

WHAAAAAAAAAAAAAAT - are they crazy, start a business in these times? Yep, they do. Either out of necessity or passion Americans are an entrepreneurial lot, it's in our DNA.

And here's something that'll really surprise you - 2009 might be remembered as the year business startups reached their highest level in 14 years– exceeding the number of startups during the peak 1999-2000 technology boom according to the Kauffman Index of Entrepreneurial Activity.

Yet despite all the hard work, passion and time millions put into getting their idea off the ground, most start-ups fail and only 18 percent of new businesses last more than five years.

Working with Harvard Business School, Murphy set out to learn how entrepreneurs can improve their odds and create a dynamic and lasting business.

What he found out from countless interviews with those who are truly successful is that starting a great company requires a lot more than a brilliant idea, good timing and a ferocious work ethic.

So what does it take? How can you make you and your idea a success and not a statistic? Murphy has what he calls the 10 rules of successful entrepreneurship - he explains what they are on the next page in his Guest Author Blog, "Stealing Harvard Business School."

10 RULES OF SUCCESS

I considered applying to Harvard Business School, but it's really expensive. It now costs about $160,000 for an unmarried student to attend for two years, including living expenses. Moreover, most HBS alumni say they want to become entrepreneurs, but comparatively few do. Even those who do eventually launch their own companies often spend years working for others first.

So, instead of trying to snag one of the 880 or so slots in each class at HBS, I decided to steal a Harvard Business School education instead.

How did I do it?

By interviewing roughly 150 successful HBS alumni-entrepreneurs, studying their experiences, and reverse engineering the secrets to their outsized outcomes. In my former job, I worked as the lead researcher to Bob Woodward of The Washington Post, so I gave these highly successful entrepreneurs "the Woodward treatment." It's amazing what you can learn when you're truly eager to listen.

I set a few criteria as I started. I wanted to get to know entrepreneurs who had launched companies from scratch that eventually did at least $50 million in annual revenue, or who had realized at least a $20 million personal windfall. Just as important, though, I wanted entrepreneurs who had created something real. "No financial Jujitsu," was my motto. If I couldn't explain an entrepreneur's business model to an eighth-grader, I found another entrepreneur to talk to.

It turned out there was no shortage of entrepreneurs who fit the bill, but in the book I settled on telling the decade-long stories of three entrepreneurs from the HBS class of 1998:

In the end, I broke down the secrets behind Marc, Marla, and Chris's success into 10 rules of successful entrepreneurship practiced by them and by the hundreds of other successful entrepreneurs that I interviewed.

1. Make the commitmentSuccessful founders commit first to entrepreneurship itself, rather than to a single business model or product. That helps them react quickly to the market, and adjust products or business models that aren’t working.

2. Find a problem, then solve itMost aspiring entrepreneurs follow the wrong strategy: they come up with a product or service and then set out to convince the market to buy it. That's backwards. It works better if you understand potential customers’ problems first, and then figure out the solutions.

3. Think Big, Think New, Think AgainYou might not wind up creating the next Facebook or Google , but the most successful entrepreneurs aspire to that kind of innovation and scale—and they keep innovating until they get it right.

4. You can't do it aloneTeams of two or three co-founders are optimal, normally with a “Big Idea Person” and “Get Stuff Done” person. Most important, however, is trust. If you haven't worked together before, it's better to try a small project together first and see how things go.

5. You must do it alone It's a paradox. There's always one co-founder who is “more equal” than the others. A startup has to act fast, fail fast, and change fast, so somebody had better be able to make decisions quickly.

6. Manage risk I could write a whole book about this one, but suffice it to say that you want to test your ideas before launching full-bore into them. Your goal is to limit your risk while simultaneously increasing the likelihood of great rewards.

7. Learn to leadYou might think you want to launch a startup, but what you really want to do is build a business. It takes a different kind of leadership to lead a larger group, so commit yourself at the outset to continually growing as a leader.

8. Learn to sellEntrepreneurs often say that sales ability is the most important attribute—and yet comparatively few people have it. Bottom line: Make the most compelling promises that you can actually keep.

9. Persist, persevere, and prevail You're going to fail at times—but that doesn't mean that you're doomed. Successful entrepreneurs recognize that almost nobody gets it right the first time, so they focus overcoming, learning, and ensuring that failure is never the end of the story.

10. Play the game for lifeSuccessful entrepreneurs sometimes get rich, but the ones you want to emulate are in this game to create, to make a difference, and to leave a legacy. They realize that the scarcest resource isn't money—it's time.

EXCERPT, 'THE INTELLIGENT ENTREPRENEUR'

Wonderful News: Most New Businesses Fail

Let me guess. If you're reading this book, it's probably because you hope to become a truly successful entrepreneur. You want to build something dynamic, useful, and great, and maybe even get rich in the process. If that's the case, then allow me to give you the good news right up front:

Most new ventures fail—usually for good reasons.

They fail because their founders launch without being truly committed to their success.

They fail because a would-be entrepreneur becomes convinced that a lousy business idea is brilliant, or because he doesn't understand the market he's targeting. They fail because their leaders don't hire the right people or offer the best people a good reason to join the venture. They fail because the founders don't have enough capital, don't know how to communicate effectively, or don't adapt to take advantage of new opportunities. Sometimes they fail because of bad luck. But more often—and this is key—unsuccessful entrepreneurs blame bad luck because they don't understand what actually caused their failure.

How can all this amount to good news for aspiring entrepreneurs? Simple: it opens up a world of opportunity. Since most founders don't learn from their successes and failures (let alone those of their predecessors), anyone who is willing and eager to learn the rules of successful entrepreneurship can enjoy a great advantage.

We live in a culture that claims to value entrepreneurship. We've made household names of the founders of some of our most successful companies. If you're standing in the business section at Barnes & Noble as you read this, or browsing through this book on Amazon, chances are you'll see the memoirs of several of those founders nearby.

"There is rarely any reason to reinvent the wheel in entrepreneurship."-Author, The Intelligent Entrepreneur, Bill Murphy, Jr

But in recent years much of the success that many entrepreneurs supposedly achieved was revealed as illusory. Market after market collapsed. Companies that were once worth a great deal of money on paper shut their doors. More recently, a new body of research has shown that much of what we think we know about entrepreneurship is wrong. We think of startups as exciting new ventures, incorporating spectacular innovation and great new ideas. We imagine businesses operating in emerging fields, led by founders with big dreams for growth. But the truth is quite different.

Most new businesses launch in unattractive, static fields.

Most startups offer no innovation or competitive advantage, cannot articulate growth plans, employ only the founders, and generate revenues of less than $100,000 a year.

Only a third of new businesses last seven years.

The typical startup begins with less than $25,000 in capital, acquired from the founder's savings (or run up on his or her personal credit cards).

Sounds daunting, doesn't it? But for the committed founder, the one who is truly determined to dare mighty things and succeed, all that entrepreneurial carnage can be a blessing. Here's why.

First, there is rarely any reason to reinvent the wheel in entrepreneurship. Some successful founder, somewhere, has addressed the same issues that just about every founder or aspiring entrepreneur faces today. By studying their examples and outcomes, the intelligent entrepreneur can dramatically improve his or her odds of success. The answers are out there, if only you know where to look.

Second, the doomed-to-fail entrepreneur doesn't have to be you. He or she can be—should be—your competition. Remember General George Patton's wise advice about the nobility of sacrificing one's life in combat: "No bastard ever won a war by dying for his country. He won it by making the other poor dumb bastard die for his country."

Modeling Success

Easy enough, right? Just identify the best examples and follow them. As it turns out, though, these lessons can be difficult to find. Even at a place like Harvard Business School (HBS), where they investigate successful enterprises for a living, there is a wealth of academic research on how to manage and grow big corporations—but nowhere near as much data-driven research on early-stage companies.

"Even knowing what questions to ask is difficult," explains Noam Wasserman, an HBS professor who specializes in entrepreneurship. "Moreover, these are private companies. And that means that inherently there are no data. I have to go out and collect all of my own data."

True, Wasserman continues, when companies prepare for an initial public offering, they have to reveal themselves to the Securities and Exchange Commission (SEC) and the world. But when academics study these companies, Wasserman points out, they are almost never able to study founders, because at that point few of them are still around. "Until recently, we weren't able to really draw any real conclusions about the types of issues and decisions that founders face."

I know that other authors have tried to tackle this problem. But this book is different from others, most of which choose between providing a dry analysis of founders and startups, or using made-up examples, anonymous anecdotes, and composite stories to illustrate their theories. Instead, The Intelligent Entrepreneur tells the true stories of three entrepreneurs from the Harvard Business School class of 1998 who started four successful businesses within ten years of graduating. Over the course of that decade, these HBS graduates also learned ten key rules of intelligent entrepreneurship, and this book examines the rules in detail, allowing every reader to discover what it takes to start a new business and make it a big success.

Chances are, you don't know this trio of entrepreneurs unless you happen to have been a client or competitor of one of their companies. But by following them over roughly a decade, as they imagined, started, and built their firms—and ultimately as they decided whether or not to sell what they'd created—we can absorb their stories, learn from their mistakes, and internalize their actions. Ultimately, my goal is to help you understand how they practice what I call "high-percentage entrepreneurship"—and to show you how you can, too.